The Impact of Fossil-Fuel Subsidies on Renewable Electricity Generation

Fossil-fuel subsidies are prevalent in many countries.

The International Energy Agency (IEA) has estimated that consumer subsidies to fossil fuels amounted to US$548 billion in 2013. In the same year, subsidies to renewable energy were estimated at US$121 billion. However, a comparison of numbers does not reveal the extent to which renewable energy is being disadvantaged in favour of continued reliance on fossil-fuel generation. The high level of fossil-fuel subsidies certainly creates disadvantages for renewable energy, but to understand the true impact it is necessary to explore the range of subsidy mechanisms rather than focus simply on the magnitude of the cost of subsidies.

In this paper the Global Subsidies Initiative presents a more complete examination of how fossil-fuel subsidies can impact the deployment of renewable energy. The paper discusses the effect of fossil-fuel subsidies on the cost competiveness of renewables, the incumbent advantage of fossil-fuel-powered generators and the distortion of investment decisions.